Bits and stuff: China, regulation and identity – Sept 16, 2017

My article on CoinDesk this week, on why China’s ICO ban was drastic, but not unreasonable. What’s more, it’s almost certainly going to be temporary.

And I stick by that conclusion even after the news out on Friday that cryptocurrency exchanges in China are being asked to close down. That will most likely also be temporary, especially as the authorities realise that it is much easier to control what is going on with regulated exchanges than in the offshore or OTC alternatives that will replace the volumes.

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Investor Albert Wenger makes the very good point that until we have global regulation for ICOs and cryptocurrencies, we won’t progress much in their development. A technology that aims to transform global capital markets needs global regulation – the current approach, he argues, appears to be to stuff everything back into country-specific, siloed regulations which complicate the cross-border application of the advantages.

Regulation is important and necessary, yes. But unless we can establish a global standard, we won’t end up with the new system that many of us believe we need.

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And then you have Balaji Srinivasan claiming in a CNBC interview that the internet will become one big stock market, just like Google became one big library.

I don’t agree with the analogy. Libraries don’t need regulating. Stock markets do. And while Google can hand out books, you’re not going to buy securities from “the internet”. The internet may become the marketplace in which various exchanges work. But that’s a far cry from becoming a global exchange itself.

With decentralized tokens, it is possible for an automated platform (ie. code) to act as an intermediary between people that want to buy and sell. But not on current internet infrastructure – you would need some sort of blockchain technology for that.

And sure, maybe the whole internet will one day be run on a blockchain, as Blockstack and IFPS (among others) are working on. But full replacement is, let’s face it, a ways off.

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A TechCrunch article on blockchain and identity succinctly points out why the technology is not the solution to the management of personal data.

It quotes an analyst as saying:

“Identity is not going to move to the blockchain in any big way (not as we know it). Blockchains were designed to solve problems quite different from identity management. We need to remember that the classic blockchain is an elaborate system that allows total strangers to nevertheless exchange real value reliably. It works without identity and without trust. So it’s simply illogical to think such a mechanism could have anything to offer identity.”

The analyst has a point. But he fails to tackle the nature of identity – it’s just data. Your identity is made up of certain characteristics, depending on the situation and/or need. Name? A sequence of characters. Place of birth? Coordinates on a map. Age? A date. Address, profession, marital status, favorite movie… They’re just bits of information.

And if blockchain technology can safeguard and distribute data in a more robust way than any other technology out there, why is it not appropriate for identity?

The thing is, the information needs to be verified. Depending on the use case, the requester needs to know that you’re not making up your date of birth or social security number. It also needs (again, depending on the use case) to be flexible – you’re likely to change your address at least once in your life, and possibly also bank account, IP address, even your name.

Could a blockchain handle that level of sophistication? Data that only you control, but that requires inputs from third parties? Yes, it most likely could.

Yet with a greater attack surface, could a blockchain identity platform guarantee security? Ah, that might be more complicated. It looks like data security and privacy might be even more urgent problems to solve.

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If these photographs of stunning fireworks don’t take your breath away, then you have no soul (or maybe you just don’t like fireworks…)…